Regardless of the make and model, every new vehicle purchased from a dealer is a major purchase, and many used vehicles' high resale values also push automotive prices out of the range of most people's price range. Instead of saving $30,000 for a new vehicle, automotive customers may turn to financing and make payments on their car over a set period of time. As with any other loan, credit must be approved and other conditions must be met. Customers should expect to pay finance charges on the money borrowed.
Selecting a Finance Company
Financing a vehicle is such a commonplace part of the car-buying experience, many auto dealerships provide financing through in-house loan officers, although banks also provide automotive loans. Although car dealers provide financing, it often comes at less favorable terms to the borrower for the convenience of one-stop shopping. On the other hand, many automotive companies don't want a customer's lack of financing to cost them a sale, so many provide financing to buyers who couldn't secure a loan elsewhere. Seek at least three options before settling on a lender.
Ownership of Vehicle
Depending upon the laws of your state, when you purchase a vehicle using financing, the lender will either hold the title of the vehicle until you repay the loan or will place a lien against the title that you hold. Either way, the lender effectively owns the vehicle until you repay your loan. Because of this, the terms of your automotive loan may require you to carry comprehensive insurance until you pay off the loan and may require other conditions as terms of the loan.
Down Payments, Interest Rates and Terms
Unlike home loans, vehicle loans may not require the car buyer to make an initial down payment, as 100 percent financing is not uncommon in vehicle loans. In many other cases, down payments don't exceed 10 percent of the vehicle's value. Lenders may provide better rates to buyers who can make a down payment, and any cash paid upfront will lessen the interest charges accrued over the lifespan of the loan, the length of the loan or the monthly payment. The Truth in Lending Act requires lenders to provide borrowers with written information about finance charges, total annual percentage rates, payment due dates, late payment penalties and the length and terms of the loan. Borrowers should request and study all information and seek clarification from their lenders on terms they don't understand.
Defaulting and Repossession
Although laws vary between states, the lender may immediately repossess your vehicle if you default on your loan. Loan documentation typically defines default terms, and skipping a payment or payments received outside of a grace period may qualify as defaulting. Lenders may allow vehicle owners to renegotiate the terms of their loan if they default, but in most cases, they're not required to do so. Vehicles repossessed by lenders may be kept or sold to recoup the costs of the loans. Lenders must tell the owner what they plan to do with the vehicle if it's repossessed.
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